UAL hits loan goal, but losses continue

United Airlines said Wednesday that it had met a key financial requirement set by its bankruptcy lenders, but the airline continues to lose money, and its cash hoard is shrinking.

UAL Corp., United's parent, said the airline had benefited from fewer cancellations than expected and interim wage cuts. The airline is negotiating with its unions to further cut salaries and benefits.

United's bankruptcy lenders, which offered financing for the airline after it filed for Chapter 11 protection in December, had demanded that losses go no higher than $964 million for the period Dec. 1 to Feb. 28.

Those losses are figured before interest, taxes, depreciation, amortization and aircraft rent. United said it met the requirement by a "wide margin" but provided no numbers.

The carrier also has reached a settlement with the Internal Revenue Service that will allow it to receive about $365 million in tax overpayments and refunds, according to court documents made available Wednesday. The settlement must be approved by U.S. Bankruptcy Court Judge Eugene Wedoff.

Meeting the financial benchmarks set by its lenders is vital to United's future. The lenders, which include Bank One Corp., want proof that the company is making progress before advancing more money. United could get as much as $1.5 billion to see it through reorganization.

"Our results for the past three months show that United has made good progress in restructuring its operations and finances," Chief Financial Officer Jake Brace said.

"However, the war in Iraq presents a number of serious challenges that are already affecting the industry, and that are expected to negatively impact earnings and cash flow for United and its competitors."

Results for February were not encouraging. United said it suffered a net loss of $367 million for the month. The airline started February with $1.8 billion in cash, which fell to $1.5 billion by the end of the month.

"The pressure is mounting for the company to quickly come to terms with labor and get some of these additional cost cuts in place to stem cash losses," said William Warlick, an airline analyst at Fitch Ratings.

"March will be weaker as a result of the falloff in demand that became apparent by mid-month [due to the Iraq war]," Warlick said. "April is likely to be weaker than March."

Industry analysts say the airlines will continue to suffer, with more carriers likely joining United, US Airways and Hawaiian Air in bankruptcy court, as long as the war in Iraq continues.

The Air Transport Association, a trade group, said domestic bookings will be down 20 percent for at least the next two months, and United said it was canceling one of its two daily flights between Tokyo and Chicago because the war has reduced demand.

"This is a temporary reduction aimed at protecting our network during a period of uncertainty," Mark Schwab, a United vice president, said in a statement.

Also Wednesday, United ran into opposition to its plan to close the large maintenance facility it operates in Indianapolis, when the International Association of Machinists and Aerospace Workers sued United, alleging the airline had failed to follow contract procedures for layoffs.

The lawsuit, filed in federal court in Indianapolis, argues that United is contractually required to give 20 days' notice, then let laid-off workers replace workers with less seniority at other company sites. United also is obligated to pay moving expenses, the lawsuit contends.

"United's action is especially outrageous considering we are in a critical stage of negotiations," said District 141-M President Scotty Ford. "United is trying to take advantage of the situation in Iraq to deny our members their contractual rights."

"We are aware of the suit and evaluating it for an appropriate response," said Joe Hopkins, a spokesman for the airline.

Even as it struggles for survival, United's service appears to be improving. The airline said it has significantly improved its on-time arrival and departure performance in recent weeks.

Several company records were set recently, the carrier said, including days on which 91 percent of all scheduled flights departed precisely on time and 96.4 percent of flights arrived early, on time or within 14 minutes of scheduled arrival.